Matching, Wage Rigidities and Efficient Severance Pay

Giulio Fella

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the effect mandated severance pay in a matching model featuring wage rigidity for ongoing, but not new, matches and Pareto efficient spot renegotiation of mandated severance pay. Severance pay matters only if real wage rigidities imply inefficient separation under employment at will. In such a case, large enough severance payments reduce job destruction and increase job creation and social efficiency, under very mild conditions. Efficient renegotiation implies that severance pay never results in privately inefficient labour hoarding and that its marginal effect is zero when its size exceeds that which induces the same allocation that would prevail in the absence of wage rigidity. These results hold under alternative micro-foundations for wage rigidity.

Keywords: Severance pay; renegotiation; wage rigidity (search for similar items in EconPapers)
JEL-codes: E24 J64 J65 (search for similar items in EconPapers)
Date: 2012-02-28
New Economics Papers: this item is included in nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Matching, Wage Rigidities and Efficient Severance Pay (2012)
Working Paper: Matching, Wage Rigidities and Efficient Severance Pay (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38638

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